The present invention relates to a system and method of using a bank routing number having a predetermined return rate stored in a database for risk analysis of check honoring approval or denial, recovery strategy formulation, and fraud detection.
Check honoring has grown ever so common. The continuous increase in the transmission of information has lowered the need to constantly carry cash and has, in effect, heightened the use of writing checks. Also, check writing provides an easy way for a customer to make a purchase or obtain cash without visiting a bank or an electronic teller.
Likewise, check/customer analysis of various sorts has increased in number and in types used. Typically, at a point of transaction in which a check is written, a merchant or an entity paid by the merchant performs a check/customer analysis in order to determine whether to accept or honor the check. Depending on parameters and calculations that are to be used, there are several ways of performing such analysis.
For example, a number of parameters specific to the transaction are processed and incorporated within an analysis program. The parameters used may include, e.g., time of day, date, check number, check amount, of the customer, etc. Each available parameter specific to the transaction is given a subscore reflecting the collectibility of the check based on historical information of the consumer. Each parameter may, and typically is, weighted in accordance with its relative importance within the analysis. In this example, the subscores for each parameter are added to provide a risk score. The risk score is then classified within a predetermined scale of scores. Depending on the reference used, the risk score may or may not fall within an approval range. If it does, then the check is approved, and if not, then the check is denied. The merchant is notified of the result.
Other programs or models may also be used to apply the number of parameters specific to the transaction. For example, a neural network model may be used to process and incorporate the parameters. Typically, neural network models allow more complex analysis given a number of variables. Network models may group specific variables together for analysis rather than separately, allowing a more in-depth analysis.
Check acceptance companies which provide electronic check conversion, check guarantee, check verification, and collection services continue to improve their analysis programs in order to function more efficiently and accurately. Parameters obviously contribute to the efficiency and accuracy of the risk score of a particular check writer. As stated above, some parameters may be weighted in accordance with their importance within the analysis. Typically, the more importance or weight applied to a parameter, the more the parameter is directly related to determining the collectibility of the check.
Typically, checks have information disposed thereon that would be useful for risk analysis of check writing approval or denial. More specifically, checks include a Magnetic Ink Character Recognition (MICR) line disposed on the bottom of the check which contains a routing number. The routing number is typically a 9-digit number used for identifying a location of the bank from which the check was issued. For example, routing number 021000018 may be broken down wherein 02 is indicative of the federal district in which the bank is located. Each federal district has branches (regions) within it. One 0 may represent the federal region within the federal district of the bank. 001 may represent the bank number used to identify the specific bank within the region. 8 may be a check digit that is used by a modulus calculation to determine that the routing number is valid.
It has been found that return rates of checks may be categorized by routing number. It is known that banks around the world conduct different risk analysis prior to opening new accounts for their customers. Some banks may have high standards for new account approval and some banks have lower standards therefor. Thus, banks which conduct risk analysis with lower standards typically have a higher return rate than the rest. A bank""s return rate may also be affected by factors such as overdraft protection policies and other policies internal to the bank. Such banks may be identified by way of routing numbers. If there was a way to harness this information for risk analysis, risk analysis programs would be enhanced.
Thus, what is needed is a system and method of using a bank routing number having a predetermined return rate stored in a database for risk analysis of check writing approval or denial. What is also needed is a system and method of using a bank routing number to improve the efficiency and accuracy of a risk analysis program or model of check honoring approval or denial.
Accordingly, it is an object of the present invention to provide a check honoring or recovery system and method of using a bank routing number having a predetermined return rate stored in a database for risk analysis of the check presented for approval or denial.
It is a further object of the present invention to provide a check honoring or recovering system and method of using a bank routing number for risk analysis of the check presented for honoring or recovering in order to improve the efficiency and accuracy of a risk analysis program.
A more specific object of this invention is a method of using a bank routing number having a predetermined return rate stored in a database of a plurality of bank routing numbers, each having an associated return rate for risk analysis of check honoring or recovering. The method involves classifying each of the plurality of bank routing numbers to one of predetermined index numbers based on the associated return rates of the plurality of bank routing numbers, receiving the bank routing number having the predetermined return rate, and processing the bank routing number to access the index number to which the bank routing number is classified. The method further includes incorporating the accessed index number of the bank routing number in the analysis for check honoring approval or denial.
Another specific object of this invention is a system for using a bank routing number having a predetermined return rate stored in a database of a plurality of bank routing numbers, each having an associated return rate for risk analysis of check honoring approval or denial. The system comprises a first mechanism for classifying each of the plurality of bank routing numbers to one of predetermined index numbers based on the associated return rates of the plurality of bank routing numbers, a second mechanism for receiving the bank routing number having the predetermined return rate, and a third mechanism for processing the bank routing number to access the index number to which the bank routing number is classified. The system further includes a fourth mechanism for incorporating the accessed index number of the bank routing number in the analysis for check honoring approval or denial.